Trump explains delaying some tariffs in trade war with China
Facing the reality of a slowing global economy and the prospect of permanent global supply chain roadblocks in China, companies are beginning to shift their business to locations that may be in a different region.
Many businesses would take years to move out of China, but pending business expansions can change to a new location more quickly, since many goods are only partially built in China, which allows for easier moves.
A couple businesses that are planning a move to Mexico from China are Dometic AB, a Swedish company that produces heating and cooling products, and Go Pro, a U.S.-owned video camera company.
From January through May, Mexico’s trade with the U.S. was up by 3.5 percent, or about $9 billion.
What we are seeing is a strategic shift with companies choosing to do business with trade partners that may be closer to home and will have a more favorable relationship (tariff free) with the U.S.
One of the supply-chain changes that does not have anything to do with the trade war with China: The decisions of companies such as Amazon and Walmart to deliver products in a day or two requires the supply chains to be closer to where the consumer is located.
And regarding China, a recent survey of 200 corporate executives by Bain & Co. indicates that in the next year, 42 percent of the executives will get materials from a region other than China and that 25 percent will be redirecting business out of China.
After more than a year of concern regarding the effects of the trade war between China and the U.S., real changes in the markets are beginning to show themselves.
This past year, U.S. markets have benefited from positive investor sentiment and confidence in the face of the trade war. Proof of the strength of the U.S. economy is indicated in the second-quarter reports that show that of the 90 percent of the companies reporting in the S&P index, their earnings reports beat expectations 75 percent of the time, which is above the five-year average.
That said, the second quarter did expose another quarter of year-over-year earnings declines (-0.7 percent).
The past couple weeks, mainly because of trade war rhetoric, our markets have seen large drops daily. That has occurred because of a reduced expectation that the trade war will yield positive results; the Fed statement, which underwhelmed the market regarding its plans for future rate cuts; and the inversion of the yield curve, which many consider a barometer for an oncoming recession.
Recently, I have seen numerous portfolios come into my office that have not been rebalanced in some time. Now is a great time to reconsider your bond allocations, which may have been reduced over the years.
Also, when reviewing your equities, consider adding U.S.-based service industry companies, consumer staples, real estate and utility companies. We are in the late stages of our market expansion, but there are no major structural weaknesses in our market like we saw in 2008.
Danny Wood is an independent financial advisor and owner of SeaCoast Financial Partners in Bradenton. To learn more visit MySeaCoastfinancial.com.